Section 61 and 97: Remuneration and service standards
117.The intention of these sections, which apply to the electricity and gas sectors respectively, is to achieve transparency as to the relationship between directors' remuneration and customer service standards in markets which are not fully competitive. The sections require utility companies that provide any price-regulated services to disclose whether or not they link the remuneration of the directors of their price-regulated businesses to levels of customer service attained in these businesses, and to give details of how any links affect remuneration.
118.The sections insert new sections, identical in their effect, into the 1986 and 1989 Acts. Subsections (2) - (4) of the new sections require the disclosure described above to be made as soon as reasonably practicable after the end of the disclosing company’s financial year, and specify what information must be disclosed. The intention is that the information should enable anyone inspecting it to understand the relationship between the level of service provided and directors’ remuneration, including how the company decided what level of service had been achieved.
119.Subsections (5) and (6) of the new sections require price-regulated companies, when they make their disclosures about the last financial year, to state the links between directors’ remuneration and service standards that are in place for the current financial year. If they have no links, but have decided to introduce them in future, they must describe these. If the current or planned links are different from last year’s, then the company must explain what differences may be expected to result from the change.
120.Under subsections (7) and (8) of the new sections, licence-holders will have to make their disclosures in a form with which the Authority is content, and publish them. The Authority can also publish them, though the intention is that it would not do so unless it felt that the publication by the company was in some way unsatisfactory (for example, because it was not accessible enough).
121.Subsection (10) of the new sections defines certain terms used. Definitions include:
“activities subject to price regulation”: the intention is to cover price regulation which constrains companies’ freedom to raise prices, of the sort imposed because a company is not exposed to full competition. Price controls such as RPI - X (whether on a single service or basket of services) are thus included, as are specified maximum prices. On the other hand, other sorts of price regulation, for example an obligation to charge the same price throughout a geographic area, are not covered by the definition;
“remuneration”: this includes all the remuneration received by a director from the price-regulated company including pension benefit;
“service standards”: the sections apply to any standards of customer service imposed by the Authority or the Secretary of State, as well as any which the company may have set itself.
The Authority is to enforce the disclosure requirement, in the same way as if it were a licence condition.
